As a practicing lawyer for more than 65 years, the question I am most frequently asked relates to whether a client can rely on Social Security for the future. I have had a great deal of confidence in the popular government program, but some recent developments and the debts and budgets of the United States have required a new examination of the question.
In the depths of the Depression in the early 1930s, President Franklin Roosevelt initiated several programs for helping the poor. After substantial battles with the Judiciary, the existence of Social Security became the law. Then Mr. Roosevelt appointed a Special Committee to work out the rules, the measures, and the publicity.
Roundtable No. 1 quickly met and assumed its responsibilities. Picture a group of learned men (women were, foolishly, not deemed sufficiently able yet) who named – let’s call him Bubba – as Chairman. Bubba had a great idea. He said simply, but profoundly, “They wouldn’t be poor if they had some money, so let’s give them some money.”
That concept won immediate acclaim. The Committee hurried to draft a program in which everyone could plan when retirement would come. People retiring in those years were mostly in their 50s or 60s. In response to the inevitable question, “Where are we going to get the money,” Bubba also had an idea. Just take it away from those people who are already working. This concept did not win immediate acclaim. The Committee groaned and complained and worried about disturbing a large segment of the population.
Time marched on, Roosevelt was reelected, and he still chose Bubba to head the Special Committee. Bubba surrounded himself with bright financial people and estimators and appraisers and all types of scholars to plan money management. In their collective wisdom, they decided by immediately paying everyone retiring a fixed sum, everyone who was working would be taxed a fixed sum, and putting those two together, the taxes would exactly equal the payout. Bubba injected another thought, however, that the Committee should build in some margin of error and therefore take more from the taxpayers who are employed to create a safety fund.
There was great joy among the poor; even the working people who were being taxed were pleased to know that the government was assuring their financial security after retirement.
Time continued its inevitable march, and then there was an explosion. The estimators had failed to take into consideration that people were going to begin to retire later and live longer. Bubba once again called this committee together, recapped all the previous estimates and gave more generous money to the retirees and assessed more tax – much more tax – on the working population. With the new changes and Bubba’s astute leadership, a pot of gold appeared to come into existence. The taxes were accumulating rapidly, planned for paying a lot more money for the retired, a pot of gold that was not immediately needed. It being inevitable that a pot of gold wasn’t just going to sit there quietly gaining more gold, the pot went into a far different and more general pot of gold which the government held.
Just a few years later, Bubba, never lacking in initiative, had another idea. He went to the President and outlined the history and indicated that he saw a way to help the President with the annual budget. Instead of putting the money further into the pot of gold, the government borrowed that cash and gave the pot of gold – Social Security – bonds. Now, what were the bonds? They were promises by the government to pay the money back, with interest. The parties deciding to invest wanted the bonds to be very safe and the assets absolutely secured. The most secure investment in the world at that time was a United States Bond that paid interest and matured and was paid in full, which seemed fool-proof. Anyone who was paying attention, however, became a little uncomfortable because the positive assurance that the taxpayers expected became less certain. It turned out that the bonds were not as valuable as cash in the pot. Nonetheless, the government proceeded to loot, er, access the fund and use it for operating the regular budget for the country. After all, there was so much cash in the pot of gold, which was of course being transformed into government bonds, that it would be a long time before the bonds would mature and the government would have to access the pot of gold to pay the obligations under Social Security.
Oddly, that policy and situation still exists; the problem is, there is essentially no money in the pot, just more and more bonds: promises from and therefore debts of the federal government.
A new group of wise men came together to oppose the continuing diversion of the Social Security tax money into the general budget. Happily, more and more people were living longer and staying in better health, but this achievement was, frankly, inconvenient to the Social Security system. Eventually, when there is no money in the pot of gold, the excess which had accumulated in the bonds will gradually become due. Right now, with the same tax program and the same drawing population, the program could run for 30 or 40 years, but soon, it may be 12 or 15 years.
Payroll tax has become an onerous stone around the neck of the working people. So at what point in time, guess what? The government is going to have to pay the Social Security that has been accumulated as a right for a worker and a retiree. But that is a huge amount of money, and the Federal Government is already more heavily in debt than it has ever been in its history. To the extent that the United States has money, or has access to more loans, the obligation to pay the then-due Social Security obligations become just like other debts of the United States, and apparently with no particularly priority.
So, Bubba went to see the President, and he outlined the problem, and he told the President two important thoughts. First, the government is losing money every year and making no progress in paying its accumulated debt of trillions of dollars. Second, the bonds of the United States of America are beginning to be suspect with respect to the bonds’ credit ratings. Right now, if China demanded payment in cash at once for all of the government bonds of the United States that they hold, we could not pay the obligation. The President then fired Bubba for giving him the bad news.
So, back to the original question. Social Security is going to have to survive, and if the Federal Government can pay its debts, it will have to pay the Social Security obligation as well, on a continuing basis, year to year thereafter. With this scenario, there may be cause to doubt the positive commitment of Social Security for the future. Bubba has now gathered some of his friends in high places and emphasized this peril to assure the payment of future social security without delay. The entire government of the United States will soon begin (if it has not already) to fear its ability to meet its obligations. Despite the difficult reality of the situation, there is hope. It may be a long shot, but sooner or later, through sleight of hand, or great prosperity, or some creative solution not yet realized, the system will endure. We are not ready yet to doubt our Social Security benefits.